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Structural change and cumulative causation: A Kaldorian approach

Guilherme Magacho and John S. L. McCombie

Metroeconomica, 2020, vol. 71, issue 3, 633-660

Abstract: This paper presents a multisectoral model based on Kaldor's approach to explain the importance of structural change and cumulative causation. Divergence in countries' growth rates in Kaldorian models are explained either by different degrees of increasing returns among sectors on the supply side or by different income elasticities of exports and imports on the demand‐side, but it is not explained by both factors together. In this vein, a multisector growth model that combines different sectoral income elasticities and different sectoral increasing returns is built to explain how structural changes toward high‐tech industries can trigger a process of cumulative causation and ensure higher growth rates in the long run.

Date: 2020
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Handle: RePEc:bla:metroe:v:71:y:2020:i:3:p:633-660